Case Law Details

Case Name : Ashapura Minichem Ltd. Vs Assistant Director of Income Tax (ITAT Mumbai)
Appeal Number : ITA No. 2508/Mum/08
Date of Judgement/Order : 21/05/2010
Related Assessment Year : 2008‐ 09
Courts : All ITAT (5688) ITAT Mumbai (1767)


  • The assessee, an Indian company entered into an agreement with a Chinese company for availing bauxite testing services.
  • The bauxite samples received from the Indian company were tested in the laboratories of the Chinese company located in China.
  • The necessary reports consequent to the test conducted on the bauxite samples were prepared in China and provided to the assessee from outside India.
  • At the time of making the payment to the Chinese company, the assessee made an application under section 195 of the Income Tax Act, 1961 (the Act) for obtaining a nil withholding tax order from the Assessing Officer (“AO”).
  • The assessee submitted that the fees to be paid to Chinese company is in the nature of business income and in the absence of any Permanent Establishment (“PE”) of the Chinese company in India in terms of India- China tax treaty (Tax Treaty), the said fee is not taxable in India.
  • The AO held that the services rendered by the Chinese company were in the nature of Fee for Technical Services (“FTS”) under the provisions of the Act as well as under the Tax Treaty and accordingly liable to withholding of tax at the rate of 10% of the gross amount under the aforesaid Tax Treaty.

Issue Before the Tribunal

  • Whether the services rendered by the Chinese company from outside India is FTS under the provisions of the Act and under the Tax Treaty.

Decision of the Tribunal

  • The fees payable to the Chinese company is covered within the scope of fees for technical services under explanation 2 to section 9(1 )(vii) of the provisions of the Act.
  • The legal premises as laid down by the Courts in the case of Clifford Chance V DCIT (318 ITR 297) and Ishikawajima Harima Heavy Industries Ltd v DIT. (288 ITR 408) that under section 9(1)(vii) services should be (i) utilised in India, and (ii) rendered in India, in order to be taxable in India, do no longer hold good in view of the retrospective amendment made in section 9 by the Government of India.
  • It is thus no longer necessary that in order to attract tax ability in India the services must also be rendered in India. As the law stands now, utilisation of the services in India is enough to attract tax ability in India.
  • It is fallacious to proceed on the basis that territorial nexus to a tax jurisdiction is inevitable to tax ability in that jurisdiction and it is a normal international practice in all tax systems. This school of thought is now specifically supported by the retrospective amendment to section 9 of the Act.
  • The definition of fees for technical services under India-China Tax Treaty is wider in scope. It provides for provision of services instead of provision of rendering of services. Therefore, it will cover the services even when these are not rendered in the other contracting state, i.e. India.
  • Article 12(6) of India China tax treaty provides that fee for technical services arises in a country where the payer is a resident. In case it is accepted that FTS as defined under Article 12(4) will cover only such services which are rendered in a contracting state i.e. India, then the deeming provision of Article 12(6) will be unworkable.
  • A literal interpretation to a Tax Treaty which renders treaty provisions unworkable and which is contrary to the clear and unambiguous scheme of the treaty has to be avoided.
  • The technical services are clearly covered under Article 12(4) and under deeming fiction of Article 12(6) of the Tax Treaty. Consequently, the payment made to the Chinese company by the assessee is subject to withholding of tax in India.


  • The decision of tribunal reaffirms the position that after amendment to section 9 of the Act, what is required is that, the services should be utilised in India in order to be taxable in India irrespective of the situs of rendering of the services.

Source: Ashapura Minichem Ltd. Vs ADIT [ITA No. 2508/Mum/08] dated 21 May, 2010

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Category : Income Tax (28832)
Type : Judiciary


  1. Rajneesh Mathur says:

    What would be the requirement of Tax deduction at source if in the above case the fee for technical services were rendered by a Chinese Company for a project being carried out by the Indian Company outside India.Would it still amount to the services being utilised in India

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